The Ontario government presented its 2012 Budget (the
"Budget") in the Ontario Legislature
earlier this week. While largely focusing on austerity measures and
spending restraint, the Budget also raised the possibility of a
number of material tax changes that, if implemented, will directly
affect those that carry on business in Ontario.
Tax rate reductions suspended
As has been widely reported in the popular press, the most
significant tax announcement contained in the Budget was the
Government's decision to freeze the implementation of certain
planned tax rate reductions.
Ontario's current general corporate income tax rate of
11.5% (26.5% when combined with the general federal corporate
income tax rate) was scheduled to decline to 11% on July 1, 2012
and 10% on July 1, 2013. The Budget proposes to delay these
scheduled tax rate reductions until the province's budget is
balanced, which is currently projected by the Government to occur
The Budget also proposes to freeze scheduled reductions to
Business Education Tax rates. (The Government again expressed an
intention to resume the scheduled Business Education Tax rate
reductions once the province's budget is balanced.)
Further tax changes on the horizon
In addition to the announced tax rate freezes, the Budget also
contained further tax proposals that were less widely reported by
the media. In particular, the Government indicated that it
Review the manner in which the province receives compensation
for its non-renewable resources (e.g., through the tax on mining
profits levied under the Mining Tax Act). The Government
indicated a desire to receive "fair compensation" for its
non-renewable resources and that it will consult with stakeholders
to review the current tax system in this regard.
Review business tax expenditures with a particular emphasis on
research and development tax credits currently available in
Ontario. The federal government is similarly examining its
Scientific Research and Experimental Development (SR&ED) tax
credit and the province has expressed a desire to cooperate with
the federal government to simplify compliance and administration of
Focus greater resources on examining how taxpayers are
characterizing employee and independent contractor relationships
for the purposes of the Ontario Employer Health Tax
("EHT"). Although the Government acknowledged that
federal rulings will still be of assistance in determining whether
an employer-employee relationship exists in a particular case, the
Government has advised that it will not necessarily be bound by
these rulings for EHT purposes. This change in administrative
practice will apply to EHT assessments issued after March 27,
Explore measures to counteract tax leakage from the underground
economy, including measures to (i) mitigate the use of
point-of-sale software to electronically conceal sales, and (ii)
identify and penalize those who facilitate or participate in tax
Consider implementing various measures used by the Province of
Quebec to "fight aggressive tax planning in the
province". In recent years, Quebec has introduced a reporting
regime that requires taxpayers to report certain
"aggressive" transactions. Failure to satisfy such
reporting requirements can subject a taxpayer to a variety of
sanctions, including monetary penalties and the suspension of
certain limitation periods.
Take steps to address the Government's concern with the
ability of corporate groups to undertake transactions that
effectively permit losses to be transferred between related
entities in a manner that ultimately results in a loss of revenue
to the Ontario treasury.
Implement measures that would require (i) recipients of
Government grants/assistance, and (ii) businesses that bid on
projects where provincial funding is involved, to be compliant with
their tax obligations.
Amend the province's retail sales tax legislation to
shorten the period in which taxpayers may apply for certain retail
sales tax refunds/rebates.
The Government has acknowledged that stakeholder input will be
sought in formulating the legislation required to implement a
number of its tax proposals. Taxpayers that may be affected by such
changes may wish to consider making submissions to the Government
during any such consultation periods.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
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